GAO Tax Report Is Only the Tip of the Iceberg

May 25, 2011 | By Jerry Ashworth | Post a Comment

The major news outlets will focus on the fact that thousands of American Recovery and Reinvestment Act grant and contract recipients owe millions of dollars in federal taxes, as reported in a Government Accountability Office report issued yesterday. However, the potential lesson that may be overlooked here is that the Office of Management and Budget may need to consider amending the grants administrative circulars, or federal awarding agencies should impose grant award conditions, to prevent those with delinquent federal tax debt from receiving awards in the first place.

The GAO report found that some 3,700 Recovery Act grant and contract recipients that received more than $24 billion in Recovery Act funds are estimated to owe more than $750 million in unpaid federal taxes as of Sept. 30, 2009. The OMB circulars currently do not prohibit the awarding of contracts or grant to entities because they owe federal taxes, although Circular A-110 §­­__.22(h)(2) states that “if an applicant has a history of financial instability, or other special conditions, the federal agency may impose additional award requirements to protect the government’s interest.” There’s a big difference between “imposing additional requirements” and simply not awarding the grant.

Although the recipients identified in the report only made up 5 percent of Recovery Act recipients, the issue of federal money being awarded to federal tax delinquents is “longstanding” and has been reported by GAO “for more than a decade,” said John Higgins, director of accountability at the Recovery Accountability Transparency Board. Combined with the fact that the RATB is not allowed access to Internal Revenue Service taxpayer data that could assist it in preventing fraud, waste and abuse of Recovery Act funds, more needs to be done administratively to prevent delinquent grantees and contractors.

If about $750 million is owed by only 5 percent of Recovery Act grantees and contractors, one can only fathom how much is owed by the entire gamut of traditional grantees and contractors.

Another point: Many of the recipients identified in the report are subrecipients, which may necessitate more tools for pass-through entities to help them better scrutinize subgrantees and contractors. Although the GAO provided no recommendations in this report, changes are definitely in order.

What is your reaction to the GAO report? Do you think changes in the OMB circulars are needed?

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